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Menu Pricing correctly

post #1 of 8
9/29/09 at 7:51am
Thread Starter 
Hi,

I recently really started to look into pricing my menu correctly to increase sale. I have scoured the web and found some use software such as Cheftec, Costguard, Resort Executive...etc. I found that they concentrated on food costing but left out the most important part the overhead expense of running the restaurant.

Can some one that had done this please help me out and show me how I can correct calculate food costing and menu pricing in conjunction with fix expense that I have to cover. I haven't found an easy way to do this yet. Thanks
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post #2 of 8
10/2/09 at 7:31pm
I apologize for posting as a non-professional cook, but in my college studies (working on a business degree) I took a class on Cost Accounting. My memory is a little foggy on the specifics, but there are several ways of applying overhead and various other costs to a product (or dish, in this case). I'd try checking into that. I can rummage through my school stuff to find my text book if you can't find the information.
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post #3 of 8
10/2/09 at 8:46pm
There are three (3) basic components of costs:
  • Food costs (generally 30-35%)
  • Labor costs (generally 30-35%)
  • Overhead (rent, utilities, intereest, depreciation, etc., generally 30-35%)
Food cost is pretty straight forward but labor and overhead is a little different, it is a monthly cost that you must allocate, by somee means, back to each serving.

The way I approach it is to calculate my monthly cost of overhead and then divide that by 30 (not accurate but an approximation of the days per month), this gives me a daily overhead cost. My daily gross should be three (3) times the daily cost of overhead.

Once I arrive at that number, I know that my labor costs cannot exceed that number, that is the overhead daily cost.

Now, having calculated my food costs per serving, I can calculate the number of servings per day to cover my overhead and labor costs. That is the MINIMUM volume I have to do to break-even.

Then I look at my competition and see if I'm "in the ballpark" with my menu prices.
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post #4 of 8
10/2/09 at 10:35pm
Either Pete's pricing is weighed towards an owner/operator, or more accurately a mom and pop, where the labor and profit are much the same.

You have to allow some room in your prices to cover expected profit -- although if you don't do enough volume your non-consumables will eat up the margin.

A fuzzy sort of rule of thumb is 1/3 - 1/3 - 1/3. 1/3 for food costs; 1/3 for other, non-labor costs; and (ideally) 1/3 for labor and profit. But different sorts of operations break down differently. Some can keep food costs down to 20%. Others make their money on the wine list and the bar and may go as high as 40% for food costs. Some places depend on an expensive location.

Pricing is also a statement of how you fit into the greater scheme of restaurants. For instance, a big-deal place can easily charge $24 for a plate of offal and garnishes with a food cost of around $3.50. So, the price isn't fully determined by actual cost, but partly by how you want your customers think of you, and partly to integrate the dish into the menu.

But ... going back to the general rule, which is as Pete has it, 3X food costs is going to get you pretty close to a (standard sort of) menu price.

BDL
___________________
Ex owner-operator Predmoninantly French catering; ex cook at a couple of good joints
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post #5 of 8
10/3/09 at 8:03am
BDL, I did not mention "profit" in the 1/3-1/3-1/3 post for the simple reason that, IMHO, the "profit" comes from trimming one or more 1/3s to, say, 30%, thus creating something between 0% and 10%, more likely 3-5% as "profit".

Thanks for catching thefact that I did not call out the profit.
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post #6 of 8
10/3/09 at 8:37am
You are dealing with many variables. In one respect I call overhead FIXED expense, because in many cases it stays somewhat the same.
Rent, Trash removal, Insurance, Licensing. Food cost varies as does labor cost based on volume and seasons of year. As BDL points out your place could charge $3.50 for an item I could charge 10.00 depending on many things we could both show same profit at the end.
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post #7 of 8
10/4/09 at 11:25am
To add to the others; don't calculate the menu prices the same for all dishes, i.e you might decide you want to run 25% food cost,and ultiply cost x 4 to achieve this. However a fillet steak that costs $5.00 might not sell for $20, a chicken breast that costs $1 will sell for a **** of a lot more than $4. Menu prices is all about balance. Have a few 'lost leader' and lots of high GP dishes, soup, sides etc.
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post #8 of 8
10/5/09 at 9:44am
Thread Starter 
Thank you all for you inputs. Doing some dry run on my excel right now.
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